Predictions for the Payments industry in 2018 – Open Banking

This is the first of our predictions for the Payments industry in 2018, and it is about the UK’s Open Banking.

This is a very high-profile and government-endorsed project to open up Retail and SME banking to technology-based new entrants, who will offer innovative and exciting propositions on top of the data they can receive from banks, and the payment orders they can send to banks.

The nine largest UK banks are obliged to comply with the book of Open Banking standards: it is voluntary for other UK financial institutions.

The first problem is that the so-called “CMA9” – the nine banks compelled by the Competition & Markets Authority to support – aren’t all ready for the 13th January 2018 live date.

The second problem is that the Payment Strategy Forum dropped the ball by disbanding its Horizon Scanning Working Group such that there is no technical and operational solution mandated on the institutions outside the CMA9 through which to comply with their obligation under Payment Services Directive 2 to allow Third-Party Providers to access accounts as from 13th January 2018.

Thus all the UK’s other “Account-Servicing Payment Service Providers” (“ASPSPs”) are left in limbo as to what to do between the live date of PSD2 (13th January 2018) and the date upon which the EBA Regulatory Technical Standards for security and communciation (“SCA & CSC”) come into force (at least 18 months later).

The FCA has stated that it expects that ASPSPs will adopt Open Banking from January 2018, but it has no power to enforce this, so in fact any technical and operational solution is potentially valid for the limbo period, leaving a yawning gap in the Payments market structure for up to two years. This is exactly the kind of development on the horizon that the PSF’s Horizon Scanning Working Group was established to identify, to qualify and quantify, and – where it was serious and relevant enough – to table to one of the PSF Working Groups: “End-User Needs”, “Simplifying Access to Markets” or “Financial Crime”. In fact this one falls across both “End-User Needs” and “Simplifying Access to Markets”.

On top of this the new Third-Party Providers have to register with the FCA, in some cases become FCA-authorised, and in all cases to have Professional Indemnity Insurance as a necessity for obtaining such registration/authorisation. The market for this PII would charitably be termed “emerging”.

Lastly the End-Users…is there any interest there actually? According to the PSF they are demanding Request-to-Pay, Confirmation of Payee, and Enhanced Data, not Open Banking. “Enhanced Data” means much more data than is within the Open Banking specification for what is to be shared by ASPSPs with Third-Party Providers. The latter then displays the data to the End-Users: if the End-Users aren’t satisfied with the scope of data being sent direct to them by the ASPSPs now, why is it going to be any better coming through a Third-Party Provider, and won’t the quality of data compromise the innovative and exciting services the Third-Party Providers are going to propose?